Startups · Entrepreneurship

Whats more important than time and capital in a startup?

Todd Outten Content, commerce and technology.

March 21st, 2016

I often hear entrepreneurs say that a lot of tech startups fail due to of lack of capital.

I have a different view. I believe that a lot of tech startups fail because of inefficient use of time.

I realize that (a) time and money have a strong, 1st level relationship and (b) capital often buys a startup time or "runway". However, in my experience the chief enemy of a startup is wasting time on activities that don't validate the idea, business, or concept sufficiently to raise capital.

My experiential albeit anecdotal evidence for this is the post-mortem conversations I have with myself, my teams, and other entrepreneurs at the end of a venture. These discussions are often a long list of sentences structured like this:

I cannot believe how much time we wasted on ...

  • Talking, thinking & debating while not doing and executing
  • Design, layout, logo, branding, etc. that looked cool but no one saw
  • Business modeling and Excel spreadsheet manipulation
  • Travel
  • Hunting down and pitching investors without anything "real" to talk about
  • Native mobile app development
  • Managing a bad hire

Each of the above wastes time and cuts into the little bit of "runway" a startup has.

Startups need time to get validated learnings that answer a couple of basic questions, e.g. Is there a business here, and if so, what are its characteristics?

Time is needed to:

  • Develop and get something to market to test
  • Run a series of experiments
  • Learn & fail
  • Uncover, refine & eliminate assumptions
  • Discover, test and validate the market
  • Uncover opportunities not present in the business plan
  • Raise capital

Raising capital is tough; however, capital exists and you can add more to your startup if you have good evidence to backup your story.

Time, on the other hand, just passes by, marches forward and doesn't come back.

Be efficient and effective with whatever time your startup has.

Paul O'Brien MediaTech Ventures CEO

March 21st, 2016

Great observations but I'd push you even further: Team team team.  First, last, and only thing of value.  

You even said it, "the chief enemy of a startup is wasting time on activities that don't validate the idea, business, or concept sufficiently to raise capital."  The time wasted is the symptom of a cause: People

Startups don't fail because of a lack of capital they have a lack of capital because they are failing.  The reason you most frequently hear that they ran out of capital is that very few founders are going to acknowledge themselves as the reason for the failure; they defer to a symptom of what happened, running out of money, not the cause.

Capital funds and is used efficiently by the team.  Time is allocated among your team.  Startups fail because of the wrong team resulting in insufficient, poorly managed, or misappropriated capital and time.

Consider the discussions you explore:

  • Talking, thinking & debating while not doing and executing - wrong people or lack of experience executing.
  • Design, layout, logo, branding, etc. that looked cool but no one saw - lack of marketing
  • Business modeling and Excel spreadsheet manipulation - Usually a CEO lacking the COO/CFO experience to know what/how to model and when enough is enough
  • Travel - Right people having the right conversations makes travel irrelevant until it delivers measurable results
  • Hunting down and pitching investors without anything "real" to talk about - The right people are worth talking about.   Investors don't just fund a revenue generating lean startup; they fund the people who can succeed.
  • Native mobile app development - The right technical co-founder and engineers (or advisors) who know if this should be built in house and how, or outsourced
  • Managing a bad hire - team.

Of what you need time for, I'd argue it's more important to get the right advisor/consultant/hire on the team who can accelerate these learnings for you.  "Learn & Fail" does not mean test things that have already been tested or learn things that people already know.  99.9999% of the startups I've watched fail failed because of a team insufficient to the task and an ignorance of or unwillingness on the part of the founders to invest in the right team.

Cheree Warrick

March 21st, 2016

Todd, I agree with you 1000%. So many entrepreneurs waste time asking for money before they've built a prototype and see if anyone will buy (or wants) the item. Great observations.

Chris Taylor Director, Channel Marketing at Yuneec USA, Inc.

March 21st, 2016

Excellent discussion. Nothing really matters until you find out if what you are building really has a value proposition that your target market(s) care about and are willing to pay for.

Stefan Pagacik Innovation Catalyst | Impact Platform Development, Finance and Human Capital Advancement

March 23rd, 2016

There is a saying in the VC community; an "A" level team can take a "C" idea and make it a successful company but a "C"  level team can take an "A" level idea and completely destroy any chance for success. I've seen it happen too many times in my career.

At the end of the day, you have to have something (product or service) that eliminates a pain point for customers willing to pay you TODAY and not a year from now or three years from today. You also have to be able to tell a story about your solution that engages and gains commitment from your team, your customers, your investors, your partners and anyone else who can help you build your venture. I agree wholeheartedly with Todd about wasting time chasing unnecessary tasks. Without the above however, it doesn't really matter how effective you are in managing your time.

Daniel Turner Available

March 21st, 2016

More or less, in broad strokes, yes.

For instance: time after time, it's been demonstrated that even a week of user research/product development/customer development (not the same things, but conceptual and practical overlap) can save months of going in the wrong direction, and dog only knows how much money. Steve Blank, Laura Klein, I, and others have written about this from practical experience and theoretical grounding.

But so many startups seem to misread Ries, to give one example, and think they need to "ship SOMETHING" as soon as they can get code to work. There's the sense that thinking doesn't equal doing or making, and that's just weird. I don't know if it's pressure from investors who don't understand (and keep in mind that they fund 100 startups expecting 94+ to fail outright). But I wish we could get over that "code is real, observing people is fake" or "my vision is sacrosanct" or "well, I want it" attitudes; we'd see failure rates drop, extrapolating from real data.

Build-->test-->iterate does not mean "build as soon as you have an idea". Dude, everybody has an idea, if not dozens. That's your hypothesis. Test it against real data. That will reduce your waste of time and money -- even if it's "just" other people's money.

Martin Omansky Independent Venture Capital & Private Equity Professional

March 21st, 2016

Your testimony is spot on. I have seen a lot of this - wasting time on things like valuation, business plan details, etc. There is a time and place for such things, but major issues need to be settled first, such as: (1) Do you own the intellectual property rights to the innovation? (2) Do you have a grasp of the commercial potential of the innovation (market size, product or service performance, sustainable comparative advantage)? (3) Do you have real business, financial, and legal skills on your side? (4) Do you believe your own hype? (5) Have you put your own dough in the deal? (6) Have disinterested parties, skilled in the art,validated your approach? (7) Is your business model appropriate for the task? (8) Do you really want to do this? After all, it is a difficult slog, even when everything is done right.

Mark Neild Empowering quietly creative people to prosper through innovative yet authentic and engaging business models

March 21st, 2016

Why do startups waste so much time?
2 reasons.  Firstly because they go down a lot of blind alleys.  Well that is the nature of discovery.  It cannot be prevented, but it can be minimised with a proper process.  Secondly and probably most of all because they are not thinking about their business model enough.  As Prof Steve Blank so eloquently put it, the primary purpose of a start up is to discover a business model.  To put it another way they need to design a series of experiments that find the best way to monetise the vision of the founders.
People need to write down their purpose in bold letters and post it somewhere really visible.  Checking whether each and every activity meets their purpose would save a huge amount of time.  Business Models are massively misunderstood and their true power rarely appreciated.

Martin Omansky Independent Venture Capital & Private Equity Professional

March 22nd, 2016

It's sometimes a close call, but if I have to choose, I would pick a superior product, because one can always replace people, but one cannot easily replace an inferior product with a better one. Sent from my iPhone

Todd Outten Content, commerce and technology.

March 22nd, 2016

Thanks everyone for your responses. This is a great discussion!

Ramon Ray Editor, Smart Hustle Magazine

March 22nd, 2016

Only thing I'd add - is to have a great team and advisors to help you with what you don't know